Budget: State Employees Raises Aren’t Really Extra

>>“Hey, you got a $1,000 raise today,” I said over my shoulder to my husband last week. “Well hot corn*,” he replied, cracking his knuckles and starting to enumerate the ways he’d spend his gains. I have to admit I was pretty excited, too. I know the across-the-board raise given to state employees in this year’s budget isn’t much, but hey, every bit helps.

Unfortunately, my cheer rapidly deflated once I ran the numbers. Although my husband—and most state employees—will see $38 extra in every single paycheck this year, >>tax increases instituted in 2013 mean less money in workers’ pockets overall.

North Carolina’s tax code was changed last year to eliminate the Earned Income Tax Credit (EITC), expand sales tax, end certain tax credits, and adjust tax rates to an overall 5.8% rate. For some state employees, particularly lower income workers who relied on the EITC, the net result of >>$1,000 raise plus new tax code is an overall decrease in income.

Let’s take the example of my family. My husband actually makes just above the average for a state worker, $42,371. According to a tax calculator provided by the Justice Center’s Budget and Tax Center, since we have two children, and file our taxes jointly, we will experience a net decrease of $182 in household income for 2014.

On the outside, the raise feels better than what state employees were given in 2009—a 10-hour furlough. That year my husband’s wages decreased by $206 off the top. But in 2009, our household state tax liability was significantly lower. We qualified for a non-cancelled deduction for my small business profit, and we also earned a refund through the EITC.

This $1,000 raise is also double that given to teacher assistants and other support personnel. Those workers get to shoulder the burden of the new tax code without the benefit of that extra money on their check. A mom who works in the classroom and has two kids will have a net $700 a year less in her pocket, far more than she gains with the $500 raise.